Mon, 18 Feb 2008
The nation expanded at the fastest pace in 10 years as declining borrowing costs encouraged companies to invest and spurred consumer spending, Bloomberg reported Friday (15/2/08).

Gross domestic product (GDP) of the $364 billion economy grew 6.25% in the three months ended December 31 from a year earlier, after expanding 6.5% in the third quarter, the Central Statistics Bureau (BPS) said. The economy grew 6.32% in the full year.

Record coal prices and surging income from sales of cocoa and cooking oil is encouraging spending on cars, motorbikes and mobile phones.

Private consumption, which represents about 70% of the economy, rose 5.6% in the fourth quarter, up from 5.3% in the third quarter and the fastest pace in almost four years.

Since December 2005, when Bank Indonesia raised its policy rate to 12.75%, inflation cooled and the rupiah gained.

Inflation rose 7.4% in January from a year earlier, down from a high of 18.4% in November 2005. The rupiah has risen 5.8% against the dollar since the end of 2005.

"Indonesia won't be immune from slowing global growth. The government cut its economic growth forecast for this year to 6.4% from 6.8," President Susilo Bambang Yudhoyono said Friday.

The business community was buoyed by moves by the government and the House of Representatives to cut corporate income tax to a single rate of 25% in an amendment of the income tax law.

A hearing on Wednesday (13/2/08) between officials from the Directorate General of Taxation and House Commission XI on financial affairs proposed implementation of the new rate for the 2009 fiscal year, The Jakarta Post reported.

Indonesia's credit rating was raised to the highest level since the 1997 Asian financial crisis by Fitch Ratings, Bloomberg reported.

Fitch lifted Indonesia's foreign-currency rating one level to BB, two levels below investment grade, from BBB-, the company said in a statement today. The outlook is stable, the credit assessor said.

“This is new ammunition for Indonesia that may help the country prevent getting affected from the global slowdown,” said Winang Budoyo, an economist at Jakarta-based PT Bank Lippo. “This will improve investor perception.”

The ratings hike came as analysts continued to discuss the possible impact of a global trade slowdown on the country, with most agreeing that the impact should be relatively benign, with only 11% of external trade with the US economy.

The Wall Street Journal also pointed to Indonesian assets as a useful hedge against global concerns, noting that while some areas of the economy would be affected, resource stocks and domestic market plays should remain strong.

"Indonesia is relatively immune to external shocks," the report quoted David Fergusson, head of Indonesian research at Citigroup Global Markets as stating.

In another sign of continuing confidence, sales of cars were up 54% in January on the same month a year earlier, while motorcycle sales were up 38%.

On the Indonesia Stock Exchange, the Jakarta Composite index closed the week at 2,688.19, half a percentage point on the day, after rising 2.5% on Thursday. The rupiah was trading at around 9,210/9,220 to the US dollar.



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